Credit demand of Australia's small and medium enterprises (SMEs) plunged 5.6 percent in the second quarter.

Veda Advantage's head of commercial risk products Hamish Osborn said, “we did not predict the large drop off in June.” Osborn claimed credit growth during the 2009 – 2010 financial year was higher than in the 2008 – 2009 period due to the impact of the federal government's stimulus activity.

The 10 percent slump in June showed the volatility of SME credit demand. The current demand is 6.1 percent below the June 2008 quarter.

Trade credit and business loans took a flat line in the June quarter 2010. The loans account for 70 percent of credit applications. However, asset finance dragged down the overall result when it sharply fell 21 percent.

According to Veda's head, SMEs continue to be hesitant of seeking more credit even with the export and bulk commodities markets pushing the economy. DBM Consultants research data shows SMEs with annual turnover of less than $1 million comprising nearly 90 percent of the Australian business sector.

Veda Advantage's commercial credit demand index showed credit demand of small to medium enterprises dropped further to 2.1 percent in July. Veda's index has kept track to 6.3 million credit enquiries since 2004.